Barclays 2007 Annual Report Download - page 91

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Business review
Barclays PLC Annual Report 2007 89
Model governance
Barclays has a large number of models in place across the Group, covering
all risk types. To minimise the risk of loss through model failure, a Group
Policy for the Control of Model Risk has been developed.
The Policy helps reduce the potential for model failure by setting
minimum standards around the end-to-end model development and
implementation process. The Policy also sets the Group governance
processes for all models, which allows model risk to be monitored across
the Group, and seeks to identify and escalate any potential problems at an
early stage.
To help ensure that sufficient management time is spent on the more
material models, each model is provided with a materiality rating.
Group Model Risk Policy defines the materiality ranges for all model types.
The materiality ranges are based on an assessment of the impact to the
Group in the event of a model error. The materiality affects the approval
and reporting level for each model, with the most material models being
approved by Group Executive Committee (ExCo).
The standards of model build, implementation, monitoring and
maintenance do not change with the materiality level.
Documentation must be sufficiently detailed to allow an expert to recreate
the model from the original data sources. It must include a description of
the data used for model development, the methodology used (and the
rationale for choosing such a methodology), a description of any
assumptions used in the model, and details of where the model
works well and areas that are known model weaknesses.
All models are subject to a validation and independent review process
before the model can be signed-off for implementation. The model
validation exercise must demonstrate that the model is fit for purpose
and provides accurate estimates. The independent review process will
also ensure that all aspects of the model development process have
been performed in a suitable manner.
The sign-off process ensures that the model is technically fit for purpose
as well as ensuring that the model satisfies the business requirements and
all the relevant regulatory requirements. The rules for model sign-off are
based on materiality, with all of a business unit’s models at least initially
being approved in business-led committees, and Group involvement
increasing as the models become more material. The most material models
receive their ultimate sign-off for implementation from Group ExCo.
All models within the Group are subject to an annual review, to ensure
that the models are performing as expected, and that assumptions used
in model development are still appropriate. In additional to annual review,
many models are subject to more frequent performance monitoring.
Model performance monitoring ensures that deficiencies in models
are identified early, and that remedial action can be taken before the
deficiency becomes serious and affects the decision-making process.
Externally developed models are subject to the same standards as internal
models, and must be initially approved for use following a validation and
independent review process. External models are also subject to the same
standards for ongoing monitoring and annual validation requirements.